French “Loi Sapin II”: the French Financial Markets Authority clarifies the extent of the prohibition of advertising of high risks financial contracts

On 9 December 2016, French Law 2016-1691 on “transparency, fight against corruption and modernisation of economy” (also known in France as “Loi Sapin II” after the Finance and Economy Minister behind it) was enacted, after having undergone the scrutiny of the French constitutional court.

Under Article 75 of Loi Sapin II (inserted in French Consumer Code under article L.222-16-1) digital advertising targeted at consumers with respect to high risks financial instruments is now prohibited.

Financial instruments will be considered as high risk for the purpose of Loi Sapin II if they are not admitted to trading on a regulated market or to a multilateral trading facility, and fall within a category of contracts to be defined in the AMF (the French financial markets authority) general rules which have the following characteristics:

the maximum potential loss is not known at the time of subscription,

the risk of loss is higher than the initial invested amount,

the risk of loss compared to potential advantages is not reasonably understandable as regards the particular nature of the financial agreement proposed.

On 19 December 2016, the AMF updated its “General Rules” thus marking the entry into force of this prohibition. The AMF specified that the following type of financial contracts will fall within the category of “high risk financial instruments” with respect of which advertising to consumers is prohibited:

financial contracts which give rise at the expiration of the agreement to the payment of a predetermined amount or to the complete or partial loss of the invested amount (whether or not a condition provided in the agreement is realised or not) ;

financial contracts which give rise to the payment of the balance, whether positive or negative, between the price of an asset or a set of underlying assets as of the date of the entry into force of the agreement and the price at the time where the position is closed and oblige, as the case may be, the client to pay an amount superior to the amount invested at the time of the entry into force of the agreement; and

financial contracts which have a currency or a set of currencies as an underlying asset.

Given the technicality of the language used, the AMF clarified in a press release dated 10 January 2017 that binary options, contracts for difference (CFDs) and foreign exchange contracts (i.e. trading on FOREX) are considered as “high risks financial instruments”.

The type of advertisers caught by this prohibition is particularly wide as it includes:

the investment service providers themselves,

financial investments advertisers,

any advertiser (except investment service providers or financial investments advertisers), which disseminate or have disseminates or has disseminated a prohibited ad,

any intermediary realising, on behalf of an advertiser, a service which has the object of dissemination of a prohibited ad,

any service provider which provides to an advertiser consultancy services with respect to media planning or consultancy services for the recommendation of advertising space for a prohibited ad,

any purchaser of advertising space providing, on behalf of an advertiser, a service whose purpose is the dissemination of a prohibited ad,

any seller of advertising space (media broker or media owner itself) offering services whose purposes is the dissemination of a prohibited ad,

any person disseminating a prohibited ad.

The breach of this prohibition by an entity listed in points 3-8 above is punished by an administrative fine up to 100,000 Euros.

Moreover, sponsorships operations having the purpose or effect of the direct or indirect advertisement of the aforementioned financial instruments are also prohibited.

Why this matters:

This prohibition applies to any type of direct or indirect digital advertising (such as e-mails, banners, pop-ups as well as radio and TV) intended for consumers. More importantly, any entity intervening in the dissemination of the prohibited ads – including intermediaries in the purchase and sale of advertising space – could be subject to sanctions.